VARDHMAN TEXTILES LTD,LUDHIANA vs. PR.CIT-1, LUDHIANA

आदेश/Order PER BENCH:

Both the two groups of appeals relate to the same assessment years i.e. 2002-03 to 2005-06 and the only issue involved, it was common ground, related to allowability of interest on refund u/s 244A of the Income Tax Act, 1961 (in short ‘the Act’)and the period for which interest is to be allowed respectively in the two groups of appeals.

ITA Nos.1264 to 1267/Chd/2019 & to 106/Chd/2020 A.Ys. 2002-03 to 2005-06 Page 4 of 28

2. Briefly explaining the background in which the above two sets of appeals arose, the Ld.Counsel for the assessee pointed out that the Ld.CIT(A), in the second round on restoration of certain issues by the ITAT, while adjudicating the issue relating to the treatment of interest received under TUF Subsidy Scheme, whether capital or revenue, held the same to be capital in nature but while holding so gave a direction that the refund generated on account of the claim of the assessee being so allowed, was not entitled to any interest thereon since the delay in the grant of refund was attributable to the assessee as it had originally returned the said interest as revenue in nature and had for the first time made this claim only in appeal before the ITAT. Against this direction of the Ld.CIT(A) the assessee went in appeal before the ITAT who restored the issue to the CIT(A) on noting that while giving this direction the assessee had not been heard at all. Accordingly, in pursuance to this direction the Ld.CIT(A) passed order afresh and held therein that the delay in refund was attributable to the assessee but since the provisions of the Act required the period of delay to be determined by the Ld. Pr.CIT, as per section 244A of the Act, he directed the AO to refer the matter to the Ld. Pr.CIT. In consequence to this direction the matter was referred to the to 1267/Chd/2019 & ITA Nos.103 to 106/Chd/2020 A.Ys. 2002-03 to 2005-06 Page 5 of 28 Ld. Pr.CIT who in turn passed his order for all the four years dated 26.07.2019. The first four set of appeals accordingly, have been filed against the order of the Ld.CIT(A) holding the delay in refund to be attributable to the assessee and directing the AO to refer the matter to the Pr.CIT, while the other group of four appeals are directed against the order of the Ld. Pr.CIT so passed on a reference made by the AO. As is evident, all of them relate to the issue of interest on refund.

At the outset itself, both the parties conceded that the order of the Ld. Pr.CIT was not appeable before the ITAT in terms of section 253 of the Act. In view of the same, the appeals in to 106/Chd/2020 are dismissed as non-maintainable.

“1 That the order passed by the Ld.CIT(A) is contrary to law and facts of the case. 2. That the Ld.CIT(A) erred in law and on facts in not allowing interest u/s 244a of the income tax act, 1961 to the assessee on the amount of refund in relation to interest reimbursement under TUFS (Technology Upgradation Fund Scheme). 3. That the appellant craves to add/alter/amend any ground of appeal on or before the due date of hearing of appeal.”

5. Reiterating the facts relating to the background in which the issue of interest on refund arose in the case of the assessee as above, the Ld.Counsel for the assessee vehemently opposed the order passed by the Ld.CIT(A) in the present case. The argument of the Ld.Counsel for the assessee was that the assessee was entitled to interest on refund as per the provisions of section 244A(1) of the Act and there was no delay attributable to the assessee at all so as to attract the provisions of section 244A(2) of the Act for referring the matter to the Ld. Pr.CIT by the AO as directed by the Ld.CIT(A) in his order. Vis-à-vis his contention that to 1267/Chd/2019 & ITA Nos.103 to 106/Chd/2020 A.Ys. 2002-03 to 2005-06 Page 7 of 28 the assessee was entitled to interest on the refund for the entire period of delay as per the provisions of section 244A(1) of the Act, he pointed out that the law stipulates interest on refund of self assessment tax paid by the assessee also as per the provisions of section 244A(1)(aa) of the Act and in the facts of the present case wherein the assessee had originally returned the interest on TUF subsidy as its income and paid the taxes thereon, which was subsequently on a plea raised before the ITAT, restored to the Ld.CIT(A) and allowed by him as being capital in nature, the refund arose to the assessee of the self assessment tax paid by the assessee on the same. He contended that the provisions of law were simple and clear and there was no ambiguity in the same at all and required interest to be paid on the delay for the entire period from the payment of taxes to the grant of refund. He contended that the provisions of section 244A(2) requiring reference by the AO to the Pr.CIT was only in the circumstances where there was a delay in the “proceedings resulting in refund”.

He stated that merely “making a claim at a later stage” was not equivalent to delay in the proceedings of refund. That there was difference between the two phrases and making a claim at a later stage did not tantamount to delay in the to 1267/Chd/2019 & ITA Nos.103 to 106/Chd/2020 A.Ys. 2002-03 to 2005-06 Page 8 of 28 proceedings of refund. He stated that his claim for interest on refund for the entire period as specified in section 244A(1) of the Act was supported by various judicial decisions of the Hon'ble High Court and even Hon'ble Supreme Court. He drew our attention to the following decisions in this regard:

7. The Ld. DR, on the other hand, vehemently supported the order of the Ld.CIT(A). His contentions in brief were that since the assessee had originally returned the interest on TUF subsidy as its income and staked his claim for the same to be treated as non taxable, being capital in nature, only in appeal before the ITAT, the delay in refund was not on account of any fault of the Department but was squarely attributable to the assessee for making a delayed claim. He, therefore, contended that the Ld.CIT(A), therefore, had rightly invoked the provisions of section 244A(2) of the Act by directing the AO to refer the issue to the Ld. Pr.CIT. In this regard, he referred and relied upon the following decisions:

1. Pala Marketing Co-op.Society Ltd. vs CIT,Kottayam (2017)79taxmann.com438(Kerala) 2. HHA Tank Terminal (P) Ltd. vs ACIT (2019) 112 Taxmann.com114 (Kerala). 8. He further distinguished the decisions relied upon by the Ld.Counsel for the assessee before us on facts. The Ld. to 1267/Chd/2019 & ITA Nos.103 to 106/Chd/2020 A.Ys. 2002-03 to 2005-06 Page 10 of 28 DR also contended that since the Ld.CIT(A) had directed the AO to make a reference to the Pr.CIT for determining the period to be excluded for payment of interest, the assessee ought to have waited for the decision of the Ld.Pr.CIT before filing the appeal and therefore the present appeals were not maintainable.

The peculiar set of facts in which the refund arose in the present case are on account of the Ld.CIT(A) allowing assessee’s claim of the interest on TUF subsidy being treated as capital in nature, which originally the assessee had treated as revenue in nature including the same in its income returned for taxation and had paid taxes on the to 1267/Chd/2019 & ITA Nos.103 to 106/Chd/2020 A.Ys. 2002-03 to 2005-06 Page 11 of 28 same also. That the occasion for the Ld.CIT(A) to allow this claim arose on the assessee raising additional grounds before the ITAT in quantum proceedings which were duly admitted by the ITAT and thereafter restored to the Ld.CIT(A) for adjudication who allowed the claim of the assessee. Therefore, the refund arose to the assessee on account of acceptance of a claim of non-taxability of a receipt in appellate proceedings, which receipt was originally returned by it as taxable and the claim was made for the first time only before the second appellate authority.

ITA Nos.1264 to 1267/Chd/2019 & to 106/Chd/2020 A.Ys. 2002-03 to 2005-06 Page 12 of 28 That making a delayed claim does not tantamount to delaying proceedings and, therefore, section 244A(2) of the Act is not applicable. That the allowance of the claim of non taxability of a receipt only recognises the position of law that the assessee was never required to pay taxes on these receipts. And having paid taxes, therefore, was entitled to refund of the surplus taxes so paid and interest thereon for the period it remained with the Revenue Department.

“244A. (1) Where refund of any amount becomes due to the assessee under this Act, he shall, subject to the provisions of this section, be entitled to receive, in addition to the said amount, simple interest thereon calculated in the following manner, namely :— (a) where the refund is out of any tax collected at source under section 206C or paid by way of advance tax or treated as paid under section 199, during the financial year immediately preceding the assessment year, such interest shall be calculated at the rate of one-half per cent for every month or part of a month comprised in the period,— (i) from the 1st day of April of the assessment year to the date on which the refund is granted, if the return of income has been furnished on or before the due date specified under sub-section (1) of section 139; or ITA Nos.1264 to 1267/Chd/2019 & to 106/Chd/2020 A.Ys. 2002-03 to 2005-06 Page 13 of 28

(ii) from the date of furnishing of return of income to the date on which the refund is granted, in a case not covered under sub-clause (i); (aa) where the refund is out of any tax paid under section 140A, such interest shall be calculated at the rate of one-half per cent for every month or part of a month comprised in the period, from the date of furnishing of return of income or payment of tax, whichever is later, to the date on which the refund is granted: Provided that no interest under clause (a) or clause (aa) shall be payable, if the amount of refund is less than ten per cent of the tax as determined under sub- section (1) of section 143 or on regular assessment; (b) in any other case, such interest shall be calculated at the rate of one-half per cent for every month or part of a month comprised in the period or periods from the date or, as the case may be, dates of payment of the tax or penalty to the date on which the refund is granted. Explanation.—For the purposes of this clause, "date of payment of tax or penalty" means the date on and from which the amount of tax or penalty specified in the notice of demand issued under section 156 is paid in excess of such demand. (1A) …….. [(1B) …..... (2) If the proceedings resulting in the refund are delayed for reasons attributable to the assessee [or the deductor, as the case may be,] whether wholly or in part, the period of the delay so attributable to him shall be excluded from the period for which interest is payable under sub-section (1) or (1A) [or (1B)], and where any question arises as to the period to be excluded, it shall be decided by the Principal Chief Commissioner or Chief Commissioner or Principal Commissioner or Commissioner whose decision thereon shall be final. (3) …….. (4) ……… ITA Nos.1264 to 1267/Chd/2019 & to 106/Chd/2020 A.Ys. 2002-03 to 2005-06 Page 14 of 28

While all self assessment taxes or other taxes paid are to be compensated for the periods from the date of filing of return of income or the date of payment of taxes whichever is later, to the grant of refund. The only caveat or exception is provided in subsection (2),that where any proceedings of refund are delayed by the assessee, this period is to be excluded from the period for which interest is to be paid.

Further it is only the Ld. Pr.CIT who is empowered to decide the period of delay.

“37.A “tax refund” is a refund of taxes when the tax liability is less than the tax paid. As per the old section an assessee was entitled for payment of interest on the amount of taxes refunded pursuant to an order passed under the Act, including the order passed in an appeal. In the present fact scenario, the deductor/assessee had paid taxes pursuant to a special order passed by the assessing officer/Income Tax Officer. In the appeal filed against the said order the assessee has succeeded and a direction is issued by the appellate authority to refund the tax paid. The amount paid by the resident/ deductor was retained by the Government till a direction was issued by the appellate authority to refund the same. When the said amount is refunded it should carry interest in the matter of course. As held by the Courts while awarding interest, it is a kind of compensation of use and retention of the money collected unauthorizedly by the Department. When the collection is illegal, there is corresponding obligation on the revenue to refund such amount with interest in as much as they have retained and enjoyed the money deposited. Even the Department has understood the object behind insertion of Section 244A, as that, an assessee is entitled to payment of interest for money remaining with the Government which would be refunded. There is no reason to restrict the same to an assessee only without extending the similar benefit to a resident/ deductor who has deducted tax at source and deposited the same before remitting the amount payable to a non-resident/ foreign company.”

17. Having said so and coming to the facts of the present case, the issue in dispute is whether or not the act of making a claim belatedly by the assessee resulting in refund tantamounts to “delay in proceedings resulting in refund” as mentioned in section 244A(2) of the Act for the purpose of to 1267/Chd/2019 & ITA Nos.103 to 106/Chd/2020 A.Ys. 2002-03 to 2005-06 Page 16 of 28 excluding the aforesaid period by referring the matter to the Ld. Pr.CIT.

Any claim allowed to the assessee at any stage whether made for the first time or whether taken up in appeal only underlines the position that no taxes were required to be paid by the assessee on the said claim at all. Therefore, in to 1267/Chd/2019 & ITA Nos.103 to 106/Chd/2020 A.Ys. 2002-03 to 2005-06 Page 17 of 28 such circumstances, the refund generated on account of the same, having been retained by the State unlawfully is entitled to be compensated with interest for the entire period for which it is so retained.

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“16. We would also examine the order of the Commissioner on merits. As noted, according to the Commissioner the assessee had raised a belated claim during the course of the assessment proceedings which resulted into delay in granting of refund and therefore, the assessee was not entitled to interest for the entire period from the first date of assessment year till the order giving effect to the appellate order was passed. We cannot uphold the view of the Commissioner. First and foremost requirement of sub-section (2) of Section 244A is that the proceedings resulting into refund should have been delayed for the reasons attributable to the assessee, whether wholly or in part. If such requirement is ITA Nos.1264 to 1267/Chd/2019 & to 106/Chd/2020 A.Ys. 2002-03 to 2005-06 Page 19 of 28 satisfied, to the extent of the period of delay so attributable to the assessee, he would be disentitled to claim interest on refund. The act of revising a return or raising a claim during the course of the assessment proceedings cannot be said to be the reasons for delaying the proceedings which can be attributable to the assessee. Mere fact that the claim came to be granted by the Appellate Commissioner, would not change this position. In essence, what the Commissioner (Appeals) did was to allow a claim which in law, in his opinion, was allowable by the Assessing Officer. In other words, by passing order in appeal, he merely recognized a legal position whereby, the assessee was entitled to claim certain benefits of reduced tax. Surely, the fact that the assessee had filed the appeal which ultimately came to be allowed by the Commissioner, cannot be a reason for delaying the proceedings which can be attributed to the assessee.

17. The Department does not contend that the assessee had needlessly or frivolously delayed the assessment proceedings at the original or appellate stage. In absence of any such foundation, mere fact that the assessee made a claim during the course of the assessment proceedings which was allowed at the appellate stage would not ipso facto imply that the assessee was responsible for causing the delay in the proceedings resulting into refund. We may refer the decision of the Kerala High Court in case of Commissioner of Income- Tax V/s. South Indian Bank Ltd., reported in (2012) 340 ITR (Ker) in which the assessee had raised a belated claim for deduction which was allowed by the Commissioner (Appeals). The Revenue, therefore, contended that for such delay, interest should be declined under Section 244A of the Act. In the said case also, the assessee had not made any claim for deduction of provision of bad debts in the original return. But before completion of the assessment, the assessee had made such a claim which was rejected by the Assessing Officer. The Commissioner allowed the claim and remanded the matter to the Assessing Officer. Pursuant to which, the assessee became entitled to refund. Revenue argued that the assessee would not be entitled to interest in view of Section 244A(2). In this context, the Court held in Para.6 as under :

“6. Sub-section (2) of section 244A provides that the assessee shall not be entitled to interest for the period of delay in issuing the proceedings leading to the refund that is attributable to the assessee. In other ITA Nos.1264 to 1267/Chd/2019 & to 106/Chd/2020 A.Ys. 2002-03 to 2005-06 Page 20 of 28 words, if the issue of the refund order is delayed for any period attributable to the assessee, then the assessee shall not be entitled to interest for such period. This is of course an exception to clauses (a) and (b) of section 244A(1) of the Act. In other words, if the issue of the proceedings, that is, refund order, is delayed for any period attributable to the assessee, then the assessee is not entitled to interest of such period. Further, what is clear from sub-section (2) is that, if the officer feels that delay in refund for any period is attributable to the assessee, the matter should be referred to the Commissioner or Chief Commissioner or any other notified person for deciding the issue and ordering exclusion of such periods for the purpose of granting interest to the assessee under section 244a(1) of the Act. In this case, there was no decision by the Commissioner or Chief Commissioner on this issue and so much so, we do not think the Assessing Officer made out the case of delay in refund for any period attributable to the assessee disentitling for interest. So much so, in our view, the officer has no escape from granting interest to the assessee in terms of section 244A(1)(a) of the Act.”

18. Under the circumstances, impugned orders dated 18.2.2016 and 16.3.2016 passed by the Commissioner of Income-Tax and Assessing Officer respectively and the demand notice dated 16.3.2016 are quashed. Petitions are disposed of accordingly.”

“4.The facts on record would show that the assessee had not claimed certain expenditure before the Assessing Officer but eventually raised such a claim before the Tribunal. Upon which, the Tribunal remanded the proceedings to the CIT(A). As such stage, the additional benefit claimed by the assessee was granted. This resulted in refund and the question of payment of interest on such refund.

assessee was responsible for causing the delay in the proceedings resulting into refund. We may refer the decision of the Kerala High Court in case of CIT Vs. South Indian Bank Ltd., reported in (2012) 340 ITR 574 (Ker) in which the assessee had raised a belated claim for deduction which was allowed by the Commissioner (Appeals). The Revenue, therefore, contended that for such delay, interest should be declined under Section 244A of the Act. In the said case also, the assessee had not made any claim for deduction of provision of bad debts in the original return. But before completion of the assessment, the assessee had made such a claim which was rejected by the Assessing Officer. The Commissioner allowed the claim and remanded the matter to the Assessing Officer. Pursuant to which, the assessee became entitled to refund. Revenue argued that the assessee would not be entitled to interest in view of Section 244A(2). In this context, the Court held in Para. 6 as under (page 578 of 340 ITR): "6. Sub-section (2) of section 244A provides that the assessee shall not be entitled to interest for the period of delay in issuing the proceedings leading to the refund that is attributable to the assessee. In other words, if the issue of the refund order is delayed for any period attributable to the assessee, then the assessee shall not be entitled to interest for such period. This is of course an exception to clauses (a) and (b) of section 244A(1) of the Act. In other words, if the issue of the proceedings, that is, refund order, is delayed for any period attributable to the assessee, then the assessee is not entitled to interest of such period. Further, what is clear from sub-section (2) is that, if the officer feels that delay in refund for any period is attributable to the assessee, the matter should be referred to the Commissioner or Chief Commissioner or any other notified person for deciding the issue and ordering exclusion of such periods for the purpose of granting interest to the assessee under section 244A(1) of the Act. In this case, there was no decision by the Commissioner or Chief Commissioner on this issue and so much so, we ITA Nos.1264 to 1267/Chd/2019 & to 106/Chd/2020 A.Ys. 2002-03 to 2005-06 Page 24 of 28 do not think the Assessing Officer made out the case of delay in refund for any period attributable to the assessee disentitling for interest. So much so, in our view, the officer has no escape from granting interest to the assessee in terms of section 244A(1)(a) of the Act." 9. In the result, no question of law arises. The appeal is dismissed.”

“13. The Assessing Officer has been given no discretion in the matter of granting interest. The amount of interest has to be paid to an assessee in terms of Section 244A of the Act. The only limitation provided therein under Section 244A of the Act is under sub-section 2 thereof which mandates that where any refund results to an assessee, while computing the interest payable thereon, the delay which is attributable to the assessee, in obtaining the refund would be excluded. The Act itself does not provide for rejecting the claim for interest on account of a mistake committed by an assessee. If such a proposition is to be accepted then all excess amounts of tax paid by the assessee on account of a mistake would stand ITA Nos.1264 to 1267/Chd/2019 & to 106/Chd/2020 A.Ys. 2002-03 to 2005-06 Page 25 of 28 rejected rendering Section 244A of the Act otiose. Section 244A of the Act provides for interest on refunds in respect of any amount which has been paid in excess to that otherwise payable under the law. In most cases the excess amount paid as tax would originate on account of some mistake either on fact or of law on the part of the assessee. Advisedly the Act does not empower the authorities to reject a claim for interest on account of a mistake committed by the assessee.”

The Hon’ble High court in this backdrop of facts held that liability to pay interest on refund arises from the date when the claim for refund is made with all necessary particulars.

The same cannot be equated with a situation where there is to 1267/Chd/2019 & ITA Nos.103 to 106/Chd/2020 A.Ys. 2002-03 to 2005-06 Page 26 of 28 no delay in filing return of income but it is only a legitimate claim which is claimed and allowed in appellate proceedings.

The order of the Ld.CIT(A) holding so is held to be not in accordance with law.

Order pronounced on 30 th July, 2021.